Income Tax Appellate Tribunal - Ahmedabad
Girish Haribhai Trivedi, Ahmedabad vs Department Of Income Tax on 5 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD
"C" BENCH
Before: Shri D.K. Tyagi, Judicial Member and
Shri T.R. Meena, Accountant Member
I.T.A. No.2986/Ahd/2011
A. Y. 2008-09
The ACIT, Vs Shri Girish Harib hai Trivedi
Circle-7 404, Serene, Opp.
Ahmed ab ad Karnavati Club,
Prahalad nagar, Ahmedab ad
PAN-AAVPT9042N
Appellant Respondent
Department by : Shri C.K. Mishra, Sr. D.R.
Assessee by : Shri Umaid Singh Bhati, A.R.
Date of hearing : 05.07.2012
Date of pronouncement 13.07.2012
आदे श/ORDER
PER : D.K. TYAGI, JUDICIAL MEMBER
This is Revenue's appeal against the order of ld. CIT(A)-XIV, Ahmedabad dated 26.09.2011.
2. The effective ground taken by the Revenue is as under:-
"The Ld. Commissioner of Income Tax (A) has erred in law and on facts in directing the Assessing Officer to treat the sale consideration of the units of an insurance policy as the amount received on account of maturity of the policy, and the cost of investment as the amount invested by the Assessee, and work out of the Long Term Capital Gain and tax payable thereon."I.T.A. No.2986/Ahd/2011 2
A. Y. 2008-09
3. This ground relates to addition of Rs.32,74,492/- made by the A.O. While making this addition the A.O. observed as under:-
"After careful consideration of the facts of the case, material on record, reply furnished by the assessee and the legal provisions of the Act, the undersigned has arrived at the following conclusion, which is discussed below:
*It is held that the investment made by the assessee on "ICICI Pru. Life" is an insurance policy and not a mutual fund.
*Since the investment in life insurance kpolicy, hence it is held that the assessee has wrongly claimed exemption u/s 10(35) of the Act on the receipts on surrender/maturity of the policy. Hence, the exempt income of Rs.14,74,492.91/- regarding which the assessee has claimed exemption, is brought to tax.
*As per Act, the assessee is entitled to claim exemption u/s 10(10D) of the Act on the receipts of Rs.32,74,492.91/- received upon surrender/maturity of the policy, but since, the assessee has violated the provisions of section 10(10D)(c ) of the Act, therefore, it is held that the assessee cannot claim exemption u/s 10(10D).
*The assessee is entitled to claim the exemption (u/s 10(10D) on the entire sum received upon the maturity/surrender of the life insurance policy (subject to the fulfilling of conditions mentioned therein) i.e. Rs.32,74,492.91/-. It means that if he does not fulfill the conditions mentioned in the relevant section then the exemption will be withdrawn and the entire receipts will be liable for taxation. In this regard, the assessee has claimed that since he has claimed exemption u/s 10(35) of the Act, taxability has to be viewed restricting to section 10(3%) only. Since the section relevant to claiming of exemption with respect to the income in question is 10(10D) and not section 10(35), therefore taxability/exemption of the income has to be viewed in the light of the relevant section (i.e. section 10(10D) only. In case an assessee discloses income under a wrong section/head of income, it does not mean that the assessing officer will be forced to assessee the taxability of the disclosed income in the section/head of income claimed by the assessee only. Similarly, if the assessee has wrongly claimed the exemption under certain section, it does not mean that the Assessing Officer will have to restrict himself regarding the exemption/taxability of such income for the section under which exemption has been claimed by the assessee only. The exemption has been claimed by the assessee only. The exemption claimed by the assessee under section 10(3%) is in no way related to the nature of income. Therefore, the taxability of the proceeds from the surrender of I.T.A. No.2986/Ahd/2011 3 A. Y. 2008-09 the policy has to be viewed considering the fact that since the assessee was liable to get tax benefits on entire proceeds out of maturity/surrender of policy, therefore he is liable to pay tax on the entire proceeds (Rs.32,74,492.91/-) which was liable for exemption.
*The assessee has pleaded that the premium of Rs.18,00,000/- paid by him should be exempted from taxation. In this regard, the Act has a provision in the form of section 80C, where the assessee can claim deduction at the time of investment up to Rs.1,00,000/- per annum. If the assessee has not availed the benefits of section 80C because of reasons known to him (may be he had claimed deduction or other investments in the relevant Assessment Years), and/or has invested more sum in the life insurance policy than is allowable for deduction u/s 80C, then it is poor tax planning on his part or, his concern to which taxability of proceeds on surrender of policy is not related. Since it is clearly mentioned in the relevant section 10(10D) that the assessee is liable to get total (100%) exemption of sum received upon surrender/maturity of the insurance policy, therefore, upon withdrawal of exemption due to valuation of enabling conditions of the exemption, total sum of Rs.32,74,492.91/- (upon surrender of policy) is taxable. The argument of the assessee that he has not claimed exemption u/s 10(20D) hardly matters as he has kept the entire amount on surrender of policy (Rs.32,74,492.91/-) tax free. Though he ha not availed the benefit of the said section actively (by jotting down the section in his submission), but by not offering the entire amount of Rs.32,74,492.91/- for taxation, he has taken exemption for the entire amount of Rs.32,74,492.91/- (irrespective of the section of Act mentioned by him in his submission). Therefore, the entire amount of Rs.32,74,492.91/- is required to be brought under the tax net.
*Therefore, in the light of the above discussion, an addition of Rs.32,74,492.91/- is made under the head "income from other sources."
4. Aggrieved by this order the assessee went in appeal before ld. CIT(A) before whom assessee placed reliance on the following written submissions:-
"The appellant was interested in investing the money in share market but since the appellant does not have knowledge of share market he has decided to invest his surplus fund on regular basis. Therefore, he called upon an agent to suggest the way of investment. The agent came to the appellant and asked to make investment on yearly basis at fixed installment. He I.T.A. No.2986/Ahd/2011 4 A. Y. 2008-09 promised that amount of investment would nearly to be double within 4 to 5 years. For which he has suggested Unit-linked based Plan.
The appellant blindly trusted him and gave his sign in the form he put before the appellant. At the time of signing the form the broker has promised that his money would be invested in equity. After 3 years' installment the appellant inquire to the agent for accumulation of his money. On realization that the money lying in Mutual Fund is not increasing so fast, the same is switched to 'Maximiser Fund' (which is 100% equity oriented). Within a year and half the money lying with 'Maximiser Fund' which is 100% equity oriented renders handsome result to the appellant. On a particular day, the appellant has decided to come out of it and request to redeem the unit available in his account.
Since, the fund was controlled by the ICICI Pru. Life Insurance Company, the redemption value shown as surrender value.
The appellant has credited his capital account by Rs.14,74,492.91 considering the same as exempted under the long term capital gain (since the holding of the units was more than 1 year old).
During the course of assessment proceedings, the learned A.O. has asked to submit the details regarding amount of Rs.14,74,492.91 credited to the capital account In rely, the appellant has submitted that the said amount is difference between cost of investment and realization of investment from Maximiser Fund, the Unit-link based fund controlled by ICICI Pru. Life Insurance Company.
The Learned A.O. is of the opinion that since the fund is controlled by ICICI Pru. Life Insurance Company, the amount received on that account would be treated as 'surrender value' of the Policy. In respect of this behalf of the Learned A.O. the appellant would like to submit that no prudent person will invest yearly 3 lacs or more against the life coverage of Rs.1,00,000/-. This is absurd.
The Learned A.O. has tried to establish that the exemption provided u/s 10(35) of the Act is not available to the appellant looking to the documents collected from ICICI Pru. Life Insurance Company. Therefore, the available section for exemption is u/s 10(10D) only. The appellant has neither claimed the exemption u/s 10(10D) of the Act nor under section 10(35) of the Act. It was belief of the appellant that the gain arises from investment in 'Maximiser Fund' (100%) equity oriented) would be exempted looking to the exemption for long term capital gain if the shares/security held for more than 1 year. However, it is found that the same is not exempted but is I.T.A. No.2986/Ahd/2011 5 A. Y. 2008-09 taxable. Therefore, the Learned A.O. cannot force the appellant to claim exemption u/s 10(10D) of the Act. Importantly, the appellant has not claimed SIP (so-called premium) u/s 80C of the Act. It was not the intention of the appellant to claim the deduction u/s 80C of the Act on account of so-called premium. The appellant was interested to double the investment within 4 to 5 years only. He was tempted by the agent who directed the appellant to make investment in the so-called Mutual Fund controlled by ICICI Pru. Life Insurance Company.
It may also be noted that the capital of the appellant is increased by the profit of Rs.14,74,492.91/-. Therefore, even the addition is to be made. It would be up to the amount by which the capital is increased.
In view of the above, the Learned A.O. is not justified in taxing the full amount of Rs.14,74,492.91/-. He may directed to delete such addition.
The appellants claim in respect of sale price realized on surrender of units was on two counts i.e. 1) exemption u/s 10(10D) which was denied on technical ground that the Sum Assured was not 5 times of the value of premium and alternatively 2) as long term capital gain from the investment in Mutual Fund.
The claim of exemption u/s 10(10D) was considered to be eligible as per letter dated 1st Aug., 2011 issued by the ICICI Prudential Life Insurance in the following terms.
"further, we inform you that Sum Assured can be increased from 1 lakhs to 30 lakhs automatically from company, in case if you wish to Sum Assured for the above mentioned Policy, then we kindly request you to submit the request for the increase in Sum Assured at any of the nearest branch."
However, in spite of the appellant's request for the increase of Sum Assured vide letter dated 6-8-2011 was summarily rejected on the ground that the policy was surrendered it cannot be accepted. Only if the Policy status is active then it could have been accepted. This non-acceptance was against the guidelines dated 21-12.2005 issued by Insurance Regulatory and Development Authority. (Copies enclosed).
The appellant's alternative claim as long-term capital gain from the investment in Mutual Fund was denied by holding that the investment made by the assessee in "ICICI Pru. Life" is an Insurance Policy. In this regard, kind attention is invited to Page 19 being Copy of Statement of Account of Policy of the assessee (Pg. No.19-20) as enclosure to the assessment order. In this Statement of Account the premium collected is allocated to Protector Fund initially and later on switched to the I.T.A. No.2986/Ahd/2011 6 A. Y. 2008-09 "Maximiser Fund". The NO. of units bought and its Net Asset Value as on date is also distinctively mentioned therein. Thus, this very document which the A.O. has made part of the Assessment Order unequivocally goes to prove beyond doubt that it is an investment in Mutual Fund and therefore eligible for Capital gain. In the appellant' case, it is a long term capital gain as per working given below.
Working of Long Term Capital Gain:
Sale Consideration received on account of sale of Units of Maximiser Mutual Fund of ICICI...............................................................Rs.32,74,493/-
Less: Cost of Investment + Charges As per Page 19 being enclosure to The order..............................................................Rs.18,00,000/-
Long term Capital Gain accrued on sale Of Units..........................................................Rs.14,72,493/-
Tax (without taking benefit of indexation) Under section 112(1) @10% on Rs.14,72,493...........................Rs.1,47,249/-
Add: Surcharge @ 3%...........................Rs.4,417/-
Tax Payable..............................Rs.1,51,666/-
As the appellant was to obtain and submit a certificate from ICICI regarding STT on the redemption/surrendered value of the units for exemption u/s 10(38), but as on date he is unable to submit the same, therefore, the above working is prepared. (refer Para-12.5 at page 13 of the asst. order).
In view of the facts available on record and submissions made, it may kindly be held that the A.O. has wrongly made addition of Rs.32,74,492/- against the above stated long-term capital gain of Rs.14,72,493 chargeable @ 10% + surcharge @ 3%."
5. After taking into consideration these sub missions of the assessee ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved by this order of ld. CIT(A) now the Revenue is in appeal before us. I.T.A. No.2986/Ahd/2011 7 A. Y. 2008-09
6. At the time of hearing, ld. D.R. relied on the order of the A.O. while learned counsel of the assessee relied on the order of ld. CIT(A).
7. After hearing both the parties and perusing the record we find that ld. CIT(A), after properly appreciating the facts of this case, has passed a well reasoned speaking order by partly allowing the appeal of the assessee. The findings of the ld. CIT(A) has remained uncontroverted by ld. D.R. at the time of hearing before us. Therefore, we are not inclined to interfere with the order passed by ld. CIT(A). For the sake of clarity, the relevant portion of the order of ld. CIT(A) is reproduced as under:-
"I have carefully perused the assessment order and the submissions given by the appellant. The brief facts of the case are that the appellant purchased a unit linked insurance policy from ICICI Prudential Life Insurance Company Limited. The name of the policy was ICICI Pru. Life Time. The policy was purchased by the appellant on 31.07.2003. The sum assured was Rs.1,00,000/-. The appellant initially made a payment of Rs.3,00,000/- by cheque on 30.07.2003. Subsequently payment of another 15,00,000/- were also made by him during the next two years. The policy was encashed by him on 22.08.2007. Accordingly, the return of income for the present assessment year was filed by the appellant showing the surplus amount of Rs.14,74,492/- as amount received on maturity of policy in the capital account. The A.O. analysed the various aspects of the policy and held that the receipts from the policy would not be exempt in view of the limitations imposed by section 10(10D) and held that the receipts would not be exempt from tax.
After careful perusal of all the facts, it is evident that the policy purchased by the appellant was a unit linked insurance policy. In this type of policy, out of the premium paid during the year, a small portion of the investment goes towards providing the life cover to the person and the residual portion is invested in a fund which in turn invests in stocks or bonds. The value of investment grows or declines as per the type of the investment made by the fund. The investor also has a choice to choose between the equity based funds or the bond based funds. The investor also can regularly change his investment from one type of fund to another considering the overall scenario of the equity market. These kind of changes are called 'switch'. At the time I.T.A. No.2986/Ahd/2011 8 A. Y. 2008-09 of the maturity, the investor is paid the amount equal to the value of the units of the date of maturity.
It is observed from the statement of account of the policy which has been enclosed to the assessment order by the A.O. that the appellant initially opted for investment in protector fund and later on is switched certain part of maximiser fund. At the time of surrender i.e. on 21.08.2007, the full value of policy was Rs.32,74,492.91 for which the cheque was issued to the appellant. The A.O. was not justified in treating the entire receipts as income of the appellant as only the surplus could have been considered for the purpose of taxation. As evident from above, the investment by the appellant was in a unit linked insurance policy in which major portion was invested in mutual funds and accordingly, the surplus on maturity of the policy should be treated as capital gain. Since no security transaction tax has been deducted at the time of transaction by the fund, the benefit of indexation will be available to the appellant. The last payment in the fund was made by the appellant on 25.08.2005 and the policy has been surrendered on 22.08.2007 which shows that the investment was for more than three years for the overall policy and more than one year from the date of last investment. The surplus will, therefore, be treated as long term capital gain on investment in mutual funds. The A.O. is, therefore, directed to take the sale consideration of units as the amount received on account of maturity of the policy and the cost of investment as the amount invested by appellant during the span of 2-3 years i.e. Rs.18,00,000/- and accordingly work out the long term capital gain and tax payable thereon, if any. The ground of appeal is accordingly partly allowed."
8. In view of the above, the order passed by ld. CIT(A) is hereby upheld.
9. In the result, Revenue's appeal is dismissed.
Order pronounced in open Court on 13.07.2012
Sd/- Sd/-
(T.R. Meena) (D.K. Tyagi)
Accountant Member Judicial Member
True copy
N.K. Chaudhary, Sr. P.S.
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:- I.T.A. No.2986/Ahd/2011 9
A. Y. 2008-09
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद ।